Post-Hearing Risk-Based Capital, Business Lending Bills Expected

Three credit union witnesses testified April 10 in a House Financial Services Committee Financial Institutions Subcommittee hearing that rules and regulations mandated by the Dodd-Frank Act are interfering with credit unions’ ability to serve their members.

“I understand that it is often difficult to pinpoint specific rules and regulations that are especially burdensome for credit unions; rather it is the cumulative effect of new regulations being layered on top of old regulations,” said Financial Institutions Subcommittee Chairwoman Shelley Moore Capito (R-W.V.) during her opening remarks.

Robert Burrow, president/CEO of the $309 million Bayer Heritage FCU and who testified on behalf of NAFCU, told the committee that while a number of regulations may be worthwhile and well intentioned, they are often issued with little coordination between regulators and without eliminating outdated regulations that remain on the books.

The one-size-fits-all approach of Dodd-Frank was frequently criticized as imposes the same regulatory burdens on small institutions as larger ones. Pamela Stephens, president/CEO of the $55 million Security One FCU, stressed that for smaller credit unions like hers, the costs of compliance proportionately are a much greater burden.

“If a smaller credit union offers a service, it has to be concerned about complying with most of the same rules as a larger institution but can only spread those costs over a much smaller volume of business,” she said. Stephens represented CUNA on the panel.

Stephens added that her credit union probably doesn’t need to be regulated the same way as a large bank like Bank of America. “I can’t envision the CEO of Bank of America sitting up at night reading regulations,” she told Capito in response to a question about small institution burden.

Regulatory burden is so bad for small credit unions, Burrow said, his Proctor, W.V.-based cooperative merged in a $1 million credit union last year because of regulatory burden. The NCUA approached Bayer Heritage asking if it would merge RMH FCU of Glen Dale, W.V., he explained.

“They weren’t hurting for capital, but they had a staff of just one and a half full-time employees and couldn’t keep up anymore,” he said. “So that’s one less credit union out there simply because of the regulatory environment we’re in.”

Committee members appeared to be interested in finding solutions to regulatory burden. A few asked the panel, which also included General Counsel Mitchell Reiver of the $1.8 billion Melrose Credit Union, to name one regulation that could be eliminated or modified that would make the biggest difference at their institution. The response was overwhelming: direct the CFPB to implement an exemption for credit unions.

Members of the committee also indicated a desire for a regulatory legislative package that would benefit both community banks and credit unions. Rep. Gregory Meeks (D-N.Y.) asked the question twice, saying he would be asking the same of community banker witnesses next week.

Regulation D, which restricts the transfer of funds from a savings account to just six per month, was one such rule mentioned that could be modified to benefit both credit unions and banks. The restriction, which Stephens said is difficult for members to understand, results in overdraft fees for members who rely upon overdraft protection from a savings account to keep their checking in the green.

Burrow said regulatory relief on Capitol Hill doesn’t have to be either-or for credit unions and banks.

“If it works to the benefit of community banks getting more money into the hands of their customers, and we can do the same for our members, that’s fine,” he said. “If we could co-exist that way, we’d all win.”

Two members of congress announced during their opening remarks that they would introduce bills that would provide regulatory relief for credit unions.

Rep. Gary Miller (R-Calif.), vice chairman of the committee, said he would introduce a bill that is expected to implement a risk-based capital system for credit unions and give the NCUA flexibility in critical areas, such as the ability to grant parity to a federal credit union on a broader state rule.

Rep. Carolyn Maloney (D-N.Y.), a senior member of the committee, announced she plans to introduce a bill that would exempt loans for five years from the credit union member business lending cap when they are made after federally declared natural disasters.

“Exempting these loans will open up a new source of credit for struggling small businesses and untie the hands of credit unions that want to provide that assistance,” she said.

The hearing was the second in a series the committee will call to focus on Dodd-Frank’s regulatory burden and the resulting harmful economic consequences.